Claimants will find oil wells dry

If the oil companies are found to have fixed prices, it won’t prove to be a rich seam for civil claimants

Cogley

The European Commission’s (EC) investigation into alleged oil market manipulation has dominated headlines. Many commentators are describing it as the biggest price-fixing probe since the Libor scandal. The offices of oil majors have been raided amid claims that oil prices they reported to Platts have been artificially inflated for a decade.

City pundits are saying that although Libor rigging had minimal affect on ordinary people, the oil price fixing may have hit motorists directly; £300bn is being touted as an estimate of the amount overpaid. So are we likely to see a mushrooming of civil claims?

This year we await two cases with claims referencing Libor rate-rigging: Graisley Properties v Barclays and Deutsche Bank v Unitech. All eyes will be on the outcome and there could be a cluster of claims waiting to see how this case plays out before launching themselves.

In the case of oil price fixing, the ramifications of any manipulation, however small, has massive effect as it is multiplied through the supply chain and because oil prices are used in a multitude of contracts.

There are crucial differences between the Libor rigging and oil price fixing scandals, which the media appears not to appreciate.

First, in the Libor saga it is the banks that manipulated the Libor rate and then liaised directly with consumers in arrangements relying on those fiddled rates, putting the consumer in a direct contractual relationship with the manipulator and thus providing grounds to sue. With the oil price fixing story the consumer is contractually several steps removed from those manipulating the market and this is what makes it hard to establish a claim.

At this stage, it is hard to see how consumers could make a claim that would ripple up the supply chain to the manipulating parties. Even in negligence, claims will be limited because contracts referencing Platts will typically exclude liability for negligent or innocent misrepresentation, or pre-contractual statements. There may be attempts to establish claims, and there may be occasions when the Supreme Court will consider the circumstances under which such exclusion clauses apply in particular cases, for example where there is significant inequality of bargaining power between the parties.

Second, it will be some time before the EC’s findings are made public. In the meantime the parties potentially affected will be denied access to all the information necessary to launch their claims. After all, in the absence of the US Treasury having taken the lead in relation to investigating Libor fixing, the facts now relied on in Graisley and in Deutsche Bank would never have come to light.

Put simply, aggrieved parties will not know whether there has been manipulation that affords them a claim. The parties most likely to have a direct cause of action are those at the top of the supply chain who entered into direct contracts with the manipulating parties. Those further down the line may have difficulties based on contractual terms that apply to their deals.